What changed in this filing

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Item 1. Business

2021-03-12 compared with 2020-03-20 · 114 added, 110 removed, 476 unchanged (32% of the section changed)

Runway Growth Credit Fund Inc.

Runway Growth Credit Fund Inc., formerly known as GSV Growth Credit Fund Inc., a Maryland corporation formed on August 31, 2015 (“we,” “us,” “our,” or the “Company”), is structured as an externally managed, non-diversified closed-end management investment company.

Runway Growth Credit Fund Inc., a Maryland corporation formed on August 31, 2015 (“we,” “us,” “our,” or the “Company”), is structured as an externally managed, non-diversified closed-end management investment company.

We are a specialty finance company focused on providing senior secured loans to rapidly growing companies in a variety of industries.

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Woodside, California;

Del Mar, California;

and New York, New York.

We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “1940 Act”).

We have also elected to be treated as regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), have qualified, and intend to continue to qualify for treatment as a RIC annually.

We have also elected to be treated as regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), currently qualify, and intend to continue to qualify for treatment as a RIC.

While we intend to qualify to be treated as a RIC annually, no assurance can be provided that we will be able to maintain our tax treatment as a RIC.

For example, we anticipate that we may have difficulty satisfying the asset diversification requirements as we deploy initial capital and build our portfolio.

If we fail to qualify for tax treatment as a RIC for any taxable year, we will be subject to corporate-level U.S.

federal income tax on any net taxable income for such year.

See “— Material U.S.

See “— Certain U.S.

Federal Income Tax Considerations” and “Note 2 — Summary of Significant Accounting Policies” to our financial statements in Part II, Item 8 of this Form 10-K for more information.

We commenced investment activities in portfolio securities during the quarter ended June 30, 2017, and we commenced investment activities in U.S.

Treasury Bills during the quarter ended December 31, 2016.

In October 2015, in connection with our formation, we issued and sold 1,667 shares of our common stock to R.

David Spreng, our President, Chief Executive Officer and Chairman of our Board of Directors, for an aggregate purchase price of $25,000.

In December 2016, we completed the initial closing of capital commitments (the “Initial Closing”) in our first private offering of shares of common stock to investors (the “Initial Private Offering”) in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the “Securities Act”), and other applicable securities laws.

The final closing of the Initial Private Offering occurred on December 1, 2017.

In connection with the Initial Private Offering, we issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000.

As of December 31, 2020, we had completed multiple closings under our second private offering (the “Second Private Offering”) and had accepted capital commitments of $174,673,500.

As of December 31, 2020, in connection with the Second Private Offering, we have issued an aggregate of 8,352,251 shares for a total purchase price of $125,283,766.

In March 2020, we issued 2,103 shares as an additional direct investment of $31,542 by Runway Growth Holdings LLC, an affiliate of RGC.

As of December 31, 2020, we have issued 4,816,873 shares for a total purchase price of $70,757,547 in connection with our dividend reinvestment plan.

We expect to operate as a “private” BDC while we continue to invest the proceeds of our private offerings and any future private offerings of our securities.

During the fourth quarter of 2020, we made an alternative trading system (the “Trading Platform”) operated by The Nasdaq Private Market, LLC or its affiliates available to stockholders to offer a liquidity option pursuant to which stockholders were able to access the Trading Platform to identify available secondary trading opportunities.

In addition, in the future, if market conditions are favorable and subject to any requisite SEC exemptive relief, we plan to seek out additional liquidity options for our stockholders, which may include the opportunity to elect to participate in a Spin-Off transaction, as further discussed in “— Investor Optionality;

Potential Spin-Offs”.

From the commencement of investment operations on December 16, 2016, through December 31, 2020, we funded 41 portfolio companies and invested $769.5 million in debt and equity investments, excluding U.S.

Treasury Bills.

As of December 31, 2019, our debt investment portfolio consisted of 36 debt investments in 21 portfolio companies with an aggregate fair value of $349.6 million while our equity portfolio consisted of 36 warrant positions and one preferred stock position in 25 portfolio companies with an aggregate fair value of $18.0 million.

As of December 31, 2020, our debt investment portfolio consisted of 40 debt investments in 23 portfolio companies with an aggregate fair value of $502.3 million while our equity portfolio consisted of 34 warrant positions, three preferred stock positions and two common stock positions in 29 portfolio companies with an aggregate fair value of $49.1 million.

As of December 31, 2020, 100%, or $502.0 million, of our debt investment portfolio at fair value consisted of senior term loans.

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The debt investments in our portfolio are generally not rated by any rating agency.

If the individual debt investments in our portfolio were rated, they would be rated below “investment grade.” Debt investments that are unrated or rated below investment grade are sometimes referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

If the individual debt investments in our portfolio were rated, they would be rated below “investment grade.” Debt investments that are unrated or rated below investment grade are sometimes

referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

For the year ended December 31, 2020, our debt investment portfolio had a dollar-weighted yield of 15.0% (excluding any yield from warrants).

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As of December 31, 2020, substantially all of our debt investments had an original committed principal amount of between $4 million and $65 million, repayment terms of between 30 months and 60 months and pay cash interest at annual interest rates of between 9.05% and 12.05%.

The final closing of the Initial Private Offering occurred on December 1, 2017.

As of December 31, 2019, in connection with the Initial Private Offering, we had total capital commitments of $275,000,000 and had issued 18,241,157 shares of our common stock to stockholders for a total purchase price of $275,000,000.

As of December 31, 2019, we had completed multiple closings under its second private offering (the “Second Private Offering”) and had accepted capital commitments of $174,423,500.

As of December 31, 2019, in connection with the Second Private Offering, we have issued an aggregate of 5,000,000 shares for a total purchase price of $75,000,000.

We expect to operate as a “private” BDC while we invest the proceeds of our private offerings and any future private offerings of our securities, after which, if market conditions are favorable, we plan to give our stockholders the opportunity to elect to participate in a Spin-Off transaction or seek other liquidity options for our stockholders, as further discussed in “— Investor Optionality;

Potential Spin-Offs”.

Our current dollar weighted average maturity for the portfolio is approximately 2.7 years.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”).

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For so long as we remain an emerging growth company under the JOBS Act, we will be subject to reduced public company reporting requirements.

We are externally managed by Runway Growth Capital LLC (“RGC”), an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940, as amended.

We are externally managed by Runway Growth Capital LLC (“RGC”), an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Advisers Act”).

Runway Administrator Services LLC (the “Administrator”), a wholly-owned subsidiary of RGC, provides all administrative services necessary for us to operate.

RGC serves as our investment adviser and, subject to the overall supervision of our Board of Directors, manages our day-to-day operations and provides us with investment advisory services pursuant to an investment advisory agreement, as amended and restated (the “Amended Advisory Agreement”).

RGC is an investment adviser that has registered under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Advisers Act”).

Under the terms of the Amended Advisory Agreement, RGC:

Subject to the overall supervision of our Board of Directors, RGC manages our day-to-day operations and provides us with investment advisory services pursuant to an investment advisory agreement, as amended and restated (the “Advisory Agreement”).

Under the terms of the Advisory Agreement, RGC:

● determines the composition of our portfolio, the nature and timing of the changes to the portfolio and the manner of implementing such changes;

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● provides us with other such investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds.

Pursuant to the Amended Advisory Agreement, we pay RGC a fee for its investment advisory and management services consisting of two components:

Pursuant to the Advisory Agreement, we pay RGC a fee for its investment advisory and management services consisting of two components:

a base management fee and an incentive fee.

The cost of both the base management fee and incentive fee are ultimately borne by our stockholders.

“Note 7 — Related Party Agreements and Transactions” to our financial statements in Part II, Item 8 of this Form 10-K for more information on the Amended Advisory Agreement and the fee structure thereunder.

See “Note 7 — Related Party Agreements and Transactions” to our financial statements in Part II, Item 8 of this Form 10-K for more information on the Advisory Agreement and the fee structure thereunder.

Payment of Our Expenses

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The Investment Committee meets regularly to consider our investments, review our strategic initiatives and supervise the actions taken by RGC on our behalf.

In addition, the Investment Committee reviews and monitors the performance of our

investment portfolio.

In addition, the Investment Committee reviews and monitors the performance of our investment portfolio.

Each investment must be approved by a majority of the Investment Committee.

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See “— Oaktree Strategic Relationship” below for more information.

Board Approval of the Amended Advisory Agreement

Our Board of Directors, including a majority of the directors who were not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us or RGC, approved the Amended Advisory Agreement at an in-person meeting on August 3, 2017 and recommended that our stockholders approve the Amended Advisory Agreement.

The Amended Advisory Agreement became effective on September 12, 2017, after approval by our stockholders at a special meeting of stockholders and was renewed by our Board of Directors at an in-person meeting on July 30, 2019.

In its consideration of the approval of the Amended Advisory Agreement, our Board of Directors focused on information it had received relating to, among other things:

the nature, quality and extent of the advisory and other services provided to us by RGC under the terms of the Amended Advisory Agreement;

Board Approval of the Advisory Agreement

Our Board of Directors, including a majority of the directors who were not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us or RGC, approved the Advisory Agreement at an in-person meeting on August 3, 2017 and recommended that our stockholders approve the Advisory Agreement.

The Advisory Agreement became effective on September 12, 2017, upon approval by our stockholders at a special meeting of stockholders, and was most recently renewed by our Board of Directors at a virtual meeting on August 5, 2020.

In reliance upon certain exemptive relief granted by the SEC in connection with the global COVID-19 pandemic, our Board of Directors undertook to ratify the Advisory Agreement at its next in-person meeting.

In its consideration of the approval of the Advisory Agreement, our Board of Directors focused on information it had received relating to, among other things:

● the nature, quality and extent of the advisory and other services provided to us by RGC under the terms of the Advisory Agreement;

● our investment performance and the investment performance of RGC;

● comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives;

information about the services being performed and the personnel performing such services under the Amended Advisory Agreement;

● information about the services being performed and the personnel performing such services under the Advisory Agreement;

● our projected operating expenses and expense ratio compared to BDCs with similar investment objectives, including expenses related to investment due diligence, travel and investigating and monitoring investments;

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In considering the factors discussed above, individual directors may have given different weights to different factors.

Based on its review of the above-mentioned factors and discussion of the Amended Advisory Agreement, our Board of Directors approved the Amended Advisory Agreement as being in our and our stockholders’ best interests.

Based on its review of the above-mentioned factors and discussion of the Advisory Agreement, our Board of Directors approved the Advisory Agreement as being in our and our stockholders’ best interests.

Duration and Termination

Unless terminated earlier as described below, the Amended Advisory Agreement will continue automatically for successive annual periods provided that such continuance is specifically approved at least annually by (i) (A) the affirmative vote of a majority of our Board of Directors or (B) the affirmative vote of a majority of our outstanding voting securities, and (ii) the affirmative vote of a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates.

The Amended Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated, without penalty, upon not more than 60 days’ written notice, by (i) the affirmative vote of a majority of our outstanding voting securities, (ii) the affirmative vote of a majority of our Board of Directors, including a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates, or (iii) RGC.

within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations” in Part I, Item 1A of this Form 10-K.

Unless terminated earlier as described below, the Advisory Agreement will continue automatically for successive annual periods provided that such continuance is specifically approved at least annually by (i) (A) the affirmative vote of a majority of our Board of Directors or (B) the affirmative vote of a majority of our outstanding voting securities, and (ii) the affirmative vote of a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates.

Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated, without penalty, upon not more than 60 days’ written notice, by (i) the affirmative vote of a majority of our outstanding voting securities, (ii) the affirmative vote of a majority of our Board of Directors, including a majority of our directors who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of us, RGC or our respective affiliates, or (iii) RGC.

See “Risk Factors — Risks Related to our Business and Structure — RGC and our Administrator have the right to resign upon not more than 60 days’ notice, and we may not be able to find a suitable replacement for either within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations” in Part I, Item 1A of this Form 10-K.

About Our Administrator

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The firm has over 1,000 employees and offices in 18 cities worldwide.

In connection with the strategic relationship, OCM Growth Holdings, LLC, a Delaware limited liability company (“OCM”) managed by Oaktree, made an initial $125 million capital commitment to us, which was subsequently increased to $139 million (the “Initial OCM Commitment”).

On June 14, 2019, the Company accepted an additional capital commitment from OCM in the amount of $112.5 million (the “Subsequent OCM Commitment) and, together with the Initial OCM Commitment (the “OCM Commitment”), for a total of capital commitment of $251.5 million.

On June 14, 2019, in connection with our Second Private Offering, the Company accepted an additional capital commitment from OCM in the amount of $112.5 million (the “Subsequent OCM Commitment and, together with the Initial OCM Commitment, the “OCM Commitment”), for a total of capital commitment of $251.5 million.

As of December 31, 2020, OCM owns 17,859,972 shares of our common stock or 57% of our total issued and outstanding shares.

OCM has granted a proxy to us pursuant to which the shares held by OCM will be voted in the same proportion as our other stockholders vote their shares.

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OCM also holds an interest in RGC and has the right to appoint a member of RGC’s board of managers and a member of the Investment Committee.

OCM’s initial appointee to RGC’s board of managers and Investment Committee is Brian Laibow.

In connection with the Subsequent OCM Commitment, OCM purchased additional equity in RGC.

We believe that our strategic relationship with Oaktree will provide us with access to additional resources and investment opportunities by expanding our network of relationships with venture backed companies.

OCM’s appointee to RGC’s board of managers and Investment Committee is Brian Laibow.

In connection with the Subsequent OCM Commitment, OCM also purchased additional equity in RGC.

We believe that our strategic relationship with Oaktree provides us with access to additional resources and investment opportunities by expanding our network of relationships with venture backed companies.

RGC expects to continue to draw upon Oaktree’s over 20-year history in the investment management business and to continue to benefit from Oaktree’s investment professionals’ significant credit expertise developed through investments in different industries and over numerous companies in the United States.

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Investor Liquidity Options

At any time after the third anniversary of the Initial Closing, we will offer our stockholders the option to elect to either (i) retain their ownership of shares of our common stock;

or (ii) exchange their shares of our common stock for shares of common stock in a newly formed entity (the “Public Fund”) that will elect to be regulated as a BDC under the 1940 Act and treated as a RIC under Subchapter M of the Code, and will use its commercially reasonable best efforts to complete an IPO of shares of its common stock not later than

three years after the final closing of the Initial Private Offering, which occurred on December 1, 2017;

or (iii) exchange their shares of our common stock for interests in a newly formed entity (a “Liquidating Fund”) that will, among other things, seek to complete an orderly wind down and/or liquidation of the Liquidating Fund;

provided, however, in no event will a stockholder be obligated to exchange his, her or its shares of our common stock for shares of common stock in the Public Fund or interests in the Liquidating Fund.

In order to effectuate these options, we expect that we would need to, among other things, transfer to the Public Fund and/or the Liquidating Fund, in exchange for newly issued shares of the Public Fund and/or the Liquidating Fund, a pro rata portion of our assets and liabilities attributable to the investors that have elected to invest in the Public Fund and/or the Liquidating Fund (such transfer of assets and liabilities and the mechanics relating thereto are referred to herein as the “Spin-Off transaction”).

At any time after December 2019, we intend to seek out liquidity options for our stockholders, which may include (a) the option to elect to either (i) retain their ownership of shares of our common stock, or (ii) exchange their shares of our common stock for shares of common stock in a newly formed entity (the “Public Fund”) that will elect to be regulated as a BDC under the 1940 Act and treated as a RIC under Subchapter M of the Code;

(b) listing our common stock on a national securities exchange;

or (d) offering to repurchase a portion of our shares of common stock outstanding from stockholders.

In order to effectuate the spin-off of the Public Fund, we expect that we would need to, among other things, transfer to the Public Fund, in exchange for newly issued shares of the Public Fund, a pro rata portion of our assets and liabilities attributable to the investors that have elected to invest in the Public Fund (such transfer of assets and liabilities and the mechanics relating thereto are referred to herein as the “Spin-Off transaction”).

We may exclude any stockholder from participating in the Spin-Off transaction if, in our reasonable discretion, there is a substantial likelihood that such stockholder’s exchange of shares of our common stock at such time would cause us or the Public Fund to (i) be in violation of, or noncompliance with, any law or regulation to which such entity is or would be subject or (ii) be deemed to hold “plan assets” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Code because the investments of “benefit plan investors” (within the meaning of Section 3(42) of ERISA and certain Department of Labor (“DOL”) regulations (such investors referred to herein as “Benefit Plan Investors”)) are deemed to be significant.

Because RGC would be managing both us the Public Fund and the Liquidating Fund in connection with any Spin-Off transaction, and the 1940 Act prohibits entities under common control from engaging in certain transactions, we will likely be required to obtain exemptive and/or no-action relief from the SEC to permit us to transfer assets to a Public Fund or a Liquidating Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction.

We and RGC have applied for exemptive relief from the SEC to permit us to transfer assets to a Public Fund or a Liquidating Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction, and we have received preliminary comments from the SEC.

Because RGC would be managing both us and the Public Fund in connection with any Spin-Off transaction, and the 1940 Act prohibits entities under common control from engaging in certain transactions, we will be required to obtain exemptive and/or no-action relief from the SEC to permit us to transfer assets to a Public Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction.

We and RGC have applied for exemptive relief from the SEC to permit us to transfer assets to a Public Fund, as well as with respect to other aspects relating to the Spin-Off transaction, including the calculation of incentive fee to be paid by us in connection with a Spin-Off transaction, and we have received comments from the SEC.

There can be no assurance that we will be able to obtain such exemptive and/or no-action relief from the SEC.

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If we elect to offer to repurchase a portion of our shares of common stock outstanding, we expect that only a limited number of shares will be eligible for repurchase from stockholders.

In addition, any such repurchases will be subject to applicable restrictions and requirements under the federal securities laws and the 1940 Act, will be at a price equal to our most recently determined net asset value per share, which may be at a discount to the price at which a stockholder purchased shares of common stock, and may be subject to any applicable lock-up period.

We may also make an alternative trading system (the “Trading Platform”) operated by The Nasdaq Private Market, LLC or its affiliates available to stockholders.

It is anticipated that stockholders would be able to access such a Trading Platform to identify available secondary trading opportunities.

Secondary trading on the Trading Platform, if available, will be subject to applicable law and would be restricted solely to accredited investors and subject to any applicable lock-up period.

Stockholders who access the Trading Platform would be subject to certain transaction fees that will not be reimbursed by us or by RGC.

We also have made and may in the future make the Trading Platform operated by The Nasdaq Private Market, LLC or its affiliates available to stockholders.

Stockholders will be able to access the Trading Platform to identify available secondary trading opportunities.

Secondary trading on the Trading Platform will be subject to applicable law and will be restricted solely to accredited investors and subject to any applicable lock-up period.

Stockholders who access the Trading Platform will be subject to certain transaction fees that will not be reimbursed by us or by RGC.

Investment Strategy and Approach

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We also expect to acquire equity securities in connection with our investments in secured loans.

We expect to build a balanced portfolio with diversification among sponsored and non-sponsored transactions, diversification among sponsors within the sponsored segment, diversification among industry, geography, and stage of development, all contributing to a favorable risk adjusted return for the portfolio viewed as a

As we build our portfolio to scale, the effects of our diversification strategy on yield and other metrics may not be fully evident, and the impact of various weightings may be more pronounced from period to period until we achieve greater scale in our portfolio.

In addition yields will fluctuate during vary stages of the credit cycle, interest rate environments, and with changing competitive pressures.

For instance, typically when interest rates are low and a credit cycle extended, new entrants will enter traditionally higher yielding markets creating additional competition and temporarily compressing yields.

For instance, typically when interest rates are low and a credit cycle extended,

new entrants will enter traditionally higher yielding markets creating additional competition and temporarily compressing yields.

We believe the credit markets, and in particular the market for our lending strategies, are presently experiencing such pressures.

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Sponsored Growth Lending and Non-Sponsored Growth Lending.

In addition to our core strategy of providing sponsored growth lending and non-sponsored growth lending, we may also opportunistically participate in the secondary markets for sponsored growth lending and non-sponsored growth lending.

Sponsored Growth Lending.

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Our Non-Sponsored Growth Lending generally includes loans to fast-growing private companies that are not backed by a professional equity investor sponsor, a venture capital firm or a private equity firm or are funded by entrepreneurs themselves or no longer require institutional equity investment, including publicly traded small-cap companies.

We refer to these target borrowers as “non-sponsored growth companies.” As opposed to Sponsored Growth Lending, in the case of Non-Sponsored Growth Lending, we generally intend to target companies with annual revenue of at least $20 million per year.

We refer to these target borrowers as “non-sponsored growth companies.” As opposed to Sponsored Growth Lending, in the case of Non-Sponsored Growth Lending, we generally target companies with annual revenue of at least $20 million per year.

To a limited extent, we also selectively provide non-sponsored growth loans to publicly traded companies.

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● a secured collateral position.

We believe there are significant barriers to entry in providing sponsored growth lending and non-sponsored growth lending, which results generally, in an environment with a limited number of

We believe there are significant barriers to entry in providing sponsored growth lending and non-sponsored growth lending, which results generally, in an environment with a limited number of competitors.

In particular, we believe we will be able to capitalize on the following crucial elements for success in the private growth company lending market:

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● experience in the unique aspects of growth company debt pricing, structure, portfolio construction and management.

The above attributes are not easily acquired and take years to establish.

The above elements are not easily acquired and take years to establish.

We believe RGC’s experienced, disciplined, and cohesive investment team possesses these necessary capabilities.

Typical attributes of our Sponsored Growth Lending and Non-Sponsored Growth Lending are as follows:

Typical terms of our Sponsored Growth Lending and Non-Sponsored Growth Lending are as follows:

● loan-size ranges from $10 million to $50 million;

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● limited and/or flexible covenant structures and, with certain affirmative and negative covenants, default penalties, lien protection, investor abandonment provisions, material adverse change provisions, change-of-control provisions, restrictions on additional use of leverage, and reimbursement for upfront and regular internal and third-party expenses and prepayment penalties.

In recent years, substantial investor capital has been allocated the private credit and direct lending asset classes, creating and increasing competition among lenders.

In recent years, substantial investor capital has been allocated to the private credit and direct lending asset classes, creating and increasing competition among lenders.

Increased competition across all segments of the private credit and direct lending markets, has reduced credit spreads, and along with very low historically low interest rates, has reduced investment yields and resulted in more borrower friendly terms and conditions.

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While their entry may or may not be permanent, their entry could lead to competitive pressure on our investment yields and other terms and conditions in the short-term.

As a BDC, we are generally limited in our ability to invest in any portfolio company in which RGC or any of its affiliates currently has an investment or to make any co-investments with our investment adviser or its affiliates without an exemptive order from the SEC, subject to certain exceptions.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted an exemptive order (the “Order”) that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by RGC or its affiliates in a manner consistent with the our investment objective, positions, policies, strategies

and restrictions as well as regulatory requirements and other pertinent factors.

We believe that the ability to co-invest with similar investment structures and accounts sponsored or managed by RGC or its affiliates will provide additional investment opportunities and the ability to achieve greater diversification.

Under the terms of the Order, a majority of our independent directors are required to make certain determinations in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our and is consistent with our investment strategies and policies.

Market Opportunity

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Our Sponsored Growth Lending strategy is focused on industry sectors where venture capital investors are active, primarily technology, life sciences, healthcare information and services, business services and other high-growth industries.

High-potential companies in sectors such as technology, life sciences,

healthcare information and services and business services represent a large and fast-growing sector of the U.S.

High-potential companies in sectors such as technology, life sciences, healthcare information and services and business services represent a large and fast-growing sector of the U.S.

This sector’s continued growth is supported by ongoing innovation and performance improvements in specific products as well as the adoption of innovative technologies and services across virtually all industries in response to competitive pressures.

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The number of financings has averaged over 10,100 for the past ten years, and during this period approximately one-third of these transactions were first time financings.

The annual level of venture investment since 2002 has generally been in the $20- to $40- billion range with a

significant increase to $71.0 billion in 2014.

Increased venture investment has continued to trend upward since 2014.

The annual level of venture investment since 2002 has generally been in the $20- to $40- billion range with a significant increase to $73.4 billion in 2014.

Venture investment has continued to trend upward since 2014.

Venture investment totaled $87.1 billion in 2017, $142.7 billion in 2018, and $138.1 billion in 2019.

The market saw a record high of $140.2 billion in 2018 while 2019 saw a slight decrease, with $136.5 billion in venture investment.

Despite the slight decrease, there is evidence of a healthy, stable venture environment where venture capital investment is consistently flowing into high-potential, technology-related companies.

The significant increase in investment amounts in 2014 – 2019 is largely the result of growth investments in later-stage companies that are staying private longer.

The market saw a record high in 2020 with $156.2 billion in venture investment.

Despite the challenges of 2020, there is evidence of a healthy, stable venture environment where venture capital investment is consistently flowing into high-potential, technology-related companies.

The significant increase in investment amounts beginning in 2014 through 2020 is largely the result of growth investments in later-stage companies that are staying private longer.

The sponsored growth lending market is estimated to be one-seventh of venture investment activity in any given year, translating to a market for loan origination of over $18 billion based on an average year of venture funding of approximately $130 billion.

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Growing pool of target companies:

The average time from initial venture capital investment to exit, either by IPO or M&A transaction, has lengthened considerably.

The average time from initial venture capital investment to exit, either by an initial public offering (IPO) or merger and acquisition transaction, has lengthened considerably.

According to the NVCA 2015 Yearbook, in 1998 the average number of years from initial venture investment to IPO of a U.S.

venture capital-backed company was approximately three years;

that number has steadily increased and has been approximately eight years since 2012.

that number has steadily increased and has been approximately six years since 2012.

2 According to the 2020 Pitchbook NVCA Q4 2020 Venture Monitor, the median time to exit is now 5.3 years.

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According to the NVCA, in 2020, $73.6 billion was raised by 321 funds, compared to $156 billion invested in the same year.

2019 was the fourteenth year in which more money was invested by the industry than raised in new commitments.

2020 was the fifteenth year in which more money was invested by the industry than raised in new commitments.

This dynamic has created strong interest in raising new venture funds;

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If such firms do provide financing, their loans normally contain financial performance covenants stipulating tangible asset coverages or setting standards of operating performance that do not apply to our target companies.

Because sponsored growth lending and non-sponsored growth lending require specialized underwriting and investment structures that fit the distinct characteristics of venture-backed companies and non-sponsored growth companies, more traditional lending approaches largely do not apply to these companies.

largely do not apply to these companies.

We also believe that our relationship-based approach to investing, which leverages the expertise of the Investment Committee in developing strong relationships with venture capital investors and venture capital-backed companies, helps us to assess investment risks and determine appropriate pricing for our investments in portfolio companies.

In addition, we expect that the relationships of RGC’s senior investment professionals will enable us to learn about, and compete effectively for, financing opportunities with attractive companies in the industries in which we seek to invest.

Our primary competitors for investments include public and private funds, other BDCs, commercial and investment banks, venture-oriented commercial banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds.

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Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to qualify and maintain our qualification as a RIC.

We do not compete primarily on the financing terms we offer and believe that some competitors

We do not compete primarily on the financing terms we offer and believe that some competitors make loans with rates that are comparable to or lower than our rates.

For additional information concerning the competitive risks we face, see “Risk Factors — Risks Related to Our Business and Structure — We operate in a highly competitive market for investment opportunities and we may not be able to compete effectively.” in Part I, Item 1A of this Form 10-K.

1 Timo Fischer & Gaétan de Rassenfosse, Venture Debt Financing:

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2 Nat’l Venture Capital Association, 2015 National Venture Capital Association Yearbook.

make loans with rates that are comparable to or lower than our rates.

Dividend Reinvestment Plan

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RGC and our Administrator may hire additional investment and administrative professionals in the future to provide services to us, based upon our needs.

Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and any internal audit staff, to the extent internal audit performs a role in our internal control assessment under Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”).

In addition, we reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and any internal audit staff, to the extent internal audit performs a role in our internal control assessment under Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”).

Implications of Being an Emerging Growth Company

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● the last day of our fiscal year following the fifth anniversary of IPO, if any;

the last day of the first fiscal year in which our annual gross revenues of $1,070,000,000 or more;

● the last day of the first fiscal year in which our annual gross revenues are equal to or greater than $1,070,000,000;

● the date on which we have, during the preceding three-year period, issued more than $1.0 billion in non-convertible debt;

the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30.

● the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.

Under the JOBS Act, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.

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Failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and the value of our common stock.”

Material U.S.

Federal Income Tax Considerations

The following discussion is a general summary of the material U.S.

The following discussion is a general summary of certain U.S.

federal income tax considerations applicable to us and to an investment in shares of our common stock.

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federal income taxation regardless of its source;

a trust if a court within the United States can exercise primary jurisdiction over the administration of the trust and one or more U.S.

or a trust if a court within the United States can exercise primary jurisdiction over the administration of the trust and one or more U.S.

persons have authority to control all substantial decisions of the trust.

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Taxation of the Company

We elected to be treated as a RIC under Subchapter M of the Code for 2015, have qualified, currently qualify and intend to qualify for treatment as a RIC annually.

We have elected to be treated as a RIC under Subchapter M of the Code, currently qualify and intend to continue to qualify for treatment as a RIC.

As a RIC, we generally will not pay corporate-level U.S.

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As a RIC, we (but not our stockholders) are generally not subject to U.S.

taxable income (which includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions), or the “Annual Distribution Requirement.” We intend to distribute annually all or substantially all of such income.

federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders in any taxable year with respect to which we distribute an amount equal to at least 90% of the sum of our (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions), or the “Annual Distribution Requirement.” We intend to distribute annually all or substantially all of such income.

Generally, if we fail to meet this Annual Distribution Requirement for any taxable year, we will fail to qualify for tax treatment as a RIC for such taxable year.

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We are subject to a nondeductible 4% U.S.

federal excise tax on certain of our undistributed income, unless we timely distribute (or are deemed to have timely distributed) an amount equal to the sum of:

federal excise tax on certain of our undistributed income, unless we timely distribute each calendar year (or are deemed to have timely distributed each calendar year) an amount equal to the sum of:

● at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;

● at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year);

any net ordinary income and capital gain net income that we recognized in previous years on which we paid no U.S.

● any net ordinary income and capital gain net income that we recognized in previous years but was not distributed during such years and on which we paid no corporate-level U.S.

federal income tax.

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While we have elected, and expect to qualify, to be treated as a RIC for 2020 and intend to qualify to be treated as a RIC annually, no assurance can be provided that we will qualify for tax treatment as a RIC for any taxable year.

For example, we anticipate that we may have difficulty satisfying the Diversification Tests as we deploy initial capital and build our portfolio.

In addition, we may have difficulty satisfying the diversification requirements after the consummation of the initial Spin-Off transaction if we decide to liquidate our portfolio

since we will not be making additional investments.

For example, we may have difficulty satisfying the diversification requirements after the consummation of the initial Spin-Off transaction if we decide to liquidate our portfolio since we will not be making additional investments.

While we generally will not lose our status as a RIC as long as we do not acquire any non-qualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition of non-qualifying securities or other property.

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Alternatively, we may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the “required majority” of our independent directors as defined in Section 57(o) of the 1940 Act approve such increase, with such approval becoming effective after one year.

Because our common stock is not listed on a national securities exchange, if we receive approval to increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% from an asset coverage ratio of 200%, then we must offer to

repurchase all of our common stock held by stockholders as of the date of such approval.

In addition, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage and risks related to leverage.

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We, RGC and certain of our affiliates have submitted an exemptive application to the SEC to permit us to co-invest with other funds managed by RGC or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

There can be no assurance that this exemptive order will be granted.

If such relief is granted, then we will be permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted the Order that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by RGC or its affiliates in a manner consistent with the our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

We are subject to periodic examination by the SEC for compliance with the 1940 Act.

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An eligible portfolio company is defined in the 1940 Act as any issuer which:

is organized under the laws of, and has its principal place of business in, the United States;

is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act;

satisfies any of the following:

does not have any class of securities that is traded on a national securities exchange;

has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;

is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company;

is a small and solvent company having gross assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.

(a) is organized under the laws of, and has its principal place of business in, the United States;

(b) is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act;

(i) does not have any class of securities that is traded on a national securities exchange;

(ii) has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;

(iii) is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company;

(iv) is a small and solvent company having gross assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.

(2) Securities of any eligible portfolio company which we control.

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Managerial Assistance to Portfolio Companies

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above in

Qualifying Assets categories (1), (2) or (3).

However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above in Qualifying Assets category (1)(c)(iv)) significant managerial assistance;

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We may also receive fees for these services.

RGC may provide, or arrange for the provision of, such managerial assistance on our behalf to portfolio companies that request this assistance, subject to reimbursement of any fees or expenses incurred on our behalf by RGC in accordance with our Amended Advisory Agreement.

Temporary Investments

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If we receive such stockholder approval, we would be permitted to increase our leverage capacity on the first day after such approval.

approval becoming effective after one year.

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In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our gross assets for temporary or emergency purposes without regard to asset coverage.

We may also borrow amounts up to 5% of the value of our gross assets for temporary purposes without regard to asset coverage.

For a discussion of the risks associated with leverage, see “Risk Factors — Risks Related to Our Business and Structure — We may borrow money, which would magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.” in Part I, Item 1A of this Form 10-K.

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(1) anyone involved in the decision-making process disclose to our management any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote;

(2) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

and (2) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

Proxy Voting Records

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Stockholders and the public may also view any materials we file with the SEC on the SEC’s website (http://www.sec.gov).

TABLE OF CONTENTS

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What changed 10-K

Item 1. Business